The Bank of England has admitted it is concerned that tough capital requirements and rock bottom interest rates are making it increasingly difficult for lenders to make money.

In his first speech as the head of the Bank’s Prudential Regulation Authority (PRA), Sam Woods will warn tonight that “many banks have simply not yet adapted to the new prudential constraints or the lower-rate environment”.

The deputy governor of the Bank will tell the City Banquet at Mansion House that this had now become “a first-order issue” for the PRA and the Bank’s Financial Policy Committee.

The PRA has been forcing banks to bolster their capital buffers to make sure they can survive during future recessions. However, this has made it harder for investment banks to trade and for lenders to issue loans, squeezing overall profits – which could in the worse case threaten their overall viability.

At the same time, Britain’s banks have been grappling with record low interest rates, which have squashed the margin they make between interest rates on loans and deposits, the so-called net interest margin (NIM).

In August, the Bank cut the base rate to 0.25pc to help stimulate the economy following the vote to leave the European Union, a move that put even further pressure on lenders.

Many banks have simply not yet adapted to the new prudential constraints or the lower-rate environmentSam Woods, chief executive of the PRA

A day later, Royal Bank of Scotland boss Ross McEwan revealed the lender had scrapped the plan to spin-off its Williams & Glyn business, blaming interest rates and capital requirements. He said at the time: “Given the lower interest rate environment it is clear that W&G would now be unlikely to grow its balance sheet to the extent necessary to deliver returns above the cost of capital within the next five years.”

Mr Woods’s warning came as Britain’s banks began reporting third-quarter results, which provided further evidence of the stresses caused by rates.

Santander UK said it saw “opportunities” to offset the pressure on its net interest income by hiking fees elsewhere in the business. The British division of the Spanish banking giant posted third-quarter NIM of 1.47pc, down from 1.5pc at the end of June, while Lloyds Bank Group said its margin had fallen to 2.69pc from 2.74pc.

Mr Woods noted that “another important element” hurting banks’ business models is the cost of misconduct. Lloyds today announced it had taken another £1bn provision to cover its costs for the payment protection insurance (PPI) scandal, taking the total it has set aside in recent years to about £17bn. Santander UK also put aside another £30m for PPI.

The PPI bill, which is already around £35bn across the industry, is likely to increase as more banks post their results.

In addition, Lloyds also booked a £100m charge for issues relating to packaged accounts.